Stock Market Predictability Essay

In the beginning, there was no real stock market. However stock exchanges did take place in smaller groups and corporations. This all took place during the 1700's where stocks were already around for a long time before that but it wasn't really popular in the United States. Stocks originally started as auctions where traders called out names of companies and the shares available. There was a auction that took place and the shares went to the highest bidders.

The extracted data used includes monthly returns from January 1972 to July 2011. The assets are selected so that the portfolio contains the largest, most liquid, and most tradable assets. The choice of such a variety of assets across several markets was used in order to generate a large cross sectional dispersion in average return. It helped to reveal new factor exposure and define a general framework of the correlated value and momentum effects in various asset classes.

Here we choose VW NYSE, AMEX, and NASDAQ data as market returns, because it’s value weighted and more reliable. The results show CSC’s equity beta = 2.27, QRG’s equity beta = 1.79.

Stock markets generally reflect the economic conditions of an economy, Alfaro, Chanda, Kalemli-Ozcan, & Sayek (2004). If an economy is growing then output will be increasing and most firms should be experiencing increased profitability. This higher profit makes the company shares more attractive – because they can give bigger dividends to shareholders. If the economy is forecast to enter into a recession, then stock markets will generally fall. This is because a recession means lower profits, less dividends and even the prospect of firms going bankrupt, which would be bad news for shareholders.

3. At what price would you recommend that Rosetta Stone shares be sold?Rosetta Stone: Pricing the 2009 IPO

In 2008, share prices dropped mainly due to the US sub-prime crisis, which started in 2007 (Lixi, 2008). This had a huge impact on the P/E ratio for 2008, which is slightly below the threshold of 10 times. The P/E ratio for ANZ was higher than NAB in 2009 and there was lesser fluctuation in ratio. Share prices tend to rise with improved economic conditions, and with stimulus packages being distributed all over the world, there was uplift in the global economy, hence driving share prices (Larsen, 2012). However, falling earnings over 2009 caused both P/E ratios to rise. NAB’s P/E ratio increased a significant amount and overtook ANZ’s. Over the 5 years, NAB’s P/E ratio fluctuation is observed to be consistently higher than ANZ’s. Moreover, NAB’s higher P/E ratio might be due to investors’ high expectations, which were not supported by earnings.

For the month of December, I was given an assignment consisting of $100,000 and four stocks to invest in. My four stocks were The Ralph Lauren Corp., Visa Inc., Master card Inc. and The Chevron Corp. As stated I was given a month to record my data and I ended up with a total capital gain of $5,518.36 for the one month period for my investments. I have to thank you Mr. Acker, this project was not difficult, but it did confuse me. Receiving this assignment scared me in a way, because I didn’t know what I was getting into. The finance world is scary and tricky, one minute the market is doing good and other days it would be low. While calculating my capital gains or losses I thought I would lose a larger

The standard deviation provides an estimation of how far above or below the expected value the stock will be compared to the expected return, and the beta is the contribution of the stock to risk to a portfolio. In comparing the beta and standard deviation for the firms, we see correlation in some of the findings. CPB has the lowest standard deviation and a low beta from our calculations suggesting that the stock is

There was not a dramatic shift in the ratios between the years of 1998 to 2000. There was however a dramatic shift between 2000 and 2001. The ratio of price decreased by more than 50% along with the stock price even though the book values per share increased.

Jegadeesh, Narasimhan , “Evidence of predictable behavior of security returns,” Journal of Finance 45, 881-898., 1990

3. An analysis of stock market conditions including recent returns on stock market indexes and average valuation ratios such as P/E ratios of stock market indexes.

Over the past semester in Economics I have invested in and monitored the stock market. I learned how investing in certain companies can be risky and proper research about the companies are detrimental before buying stocks. Three stocks that have influenced most of my financial earnings and losses include Twitter, Amazon, and Pepsi.

It was 1929, and in the United States things could not be better for those smart enough, or for that matter, brave enough, to gamble on the Stock Market. All of the big stocks were paying off handsomely, the little ones too. However, as much as analysis tried to tell the people that this period of great wealth would last, no one could imagine what would come of the United States economy in the next decade. The reasons for this catastrophic event in American 20th century history are numerous, and in his book, The Great Crash, John Kenneth Galbraith covers the period and events which lead up to the downward spiral in the fall of 1929 and the people behind the scenes on Wall Street who helped this fire spread.

As indicated by the case study S&P 500 index was use as a measure of the total return for the stock market. Our standard deviation of the total return was used as a one measure of the risk of an individual stock. Also betas for individual stocks are determined by simple linear regression. The variables were: total return for the stock as the dependent variable and independent variable is the total return for the stock. Since the descriptive statistics were a lot, only the necessary data was selected (below table.)

Even though there are flaws in the CAPM for empirical study, the approach of the linearity of expected return and risk is readily relevant. As Fama & French (2004:20) stated “… Markowitz’s portfolio model … is nevertheless a theoretical tour de force.” It could be seen that the study of this paper may possibly justify Fama & French’s study that stated the CAPM is insufficient in interpreting the expected return with respect to risk. This is due to the failure of considering the other market factors that would affect the stock price.